Best Performing ETFs So Far This Year

They say the best perfumes come in the smallest bottles. Perhaps that holds true in ETFs, too—at least when it comes to short-term performance.

Investors poured more than $200 billion into U.S.-listed ETFs in the first five months of the year, bringing total U.S. ETF assets to almost $3 trillion. The most popular fund this year, the iShares Core S&P 500 ETF (IVV), attracted some $14 billion in net inflows.

But the top 10 best-performing ETFs this year command only about $1.42 billion in total combined assets. Their net creations between January and May 2017 reached only $458.5 million split across 10 different funds.

And yet their year-to-date results stand out among the 2,000-plus ETFs listed in the U.S. today.

Story Lines Behind Performance

Behind these funds’ impressive performances so far this year are a few different story lines: historically low volatility in the U.S. stock market; a mind-boggling rally in bitcoin prices; a forging recovery in emerging markets; and across-the-board strength in the tech sector.

Leading with gains of more than 53% in five months is a complex volatility ETN, the VelocityShares VIX Short Volatility Hedged ETN (XIVH). The strategy—which includes both a large short exposure to near-term VIX futures and a small long and leveraged position—is built to benefit from contango in CBOE Volatility Index (VIX) futures. In other words, it gains most when the VIX is going down.

By the end of May, VIX was trading just below 10—far off its 52-week high of 26.7, according to CBOE data, and it’s been below 10 at close of trading several times in the month of May alone. Volatility has been declining, making it the perfect setting for XIVH to flourish.

Bitcoin Booming

Another big story this year fueling a pair of ETFs has been bitcoin.

The Securities and Exchange Commission decision earlier this year to deny permission for bitcoin ETFs to come to market only helped further fuel the bitcoin space. In the first five months of the year, bitcoin prices surged nearly 150%.

Those bitcoin gains are largely the reason two very small ARK Invest funds are among the top-performing ETFs of the year. Bitcoin—owned through allocations to the Grayscale Bitcoin Trust (GBTC)—is the ARK Innovation ETF (ARKK) and the ARK Web x.0 ETF (ARKW)’s biggest single holding, at about 8% and 8.2%, respectively.

Both funds also own names like Tesla, Amazon and Athena Health—all companies that have been delivering strong returns this year.

These ETFs are actively managed funds said to benefit from their portfolio managers’ strong “conviction” when it comes to owning specific stocks. They have on occasion bought into stocks that they believe in for the long haul even when they might seem out of favor in the near term—value plays that sometimes work wonders.